After sluggish construction for a number of years, condominiums are back. Although it is difficult to pin down exact numbers, 27% of housing starts during the first three months of the year have come in the form of multi-family units, many of which are for-sale condominiums.
In portions of metropolitan Southern California and the Bay Area, multi-family development dominates the market. In the San Francisco, Marin and San Mateo counties market area, new multi-family units outnumber new single-family houses by about 10 to 1, according to the California Building Industry Association (CBIA). In Los Angeles County, there are about two new multi-family units for every new single-family house. As recently as six years ago, condos accounted for only 2% of new housing units.
Several factors appear to be driving the trend. Builders point to SB 800, legislation approved in 2002 that sets performance standards for builders and gives builders a right to repair alleged defects before a homeowner may sue. The legislation encouraged developers and insurers to get back into the condo business. Many large cities and suburbs have little land available for new development, a shortage that discourages low-density, single-family projects. Planners also note that shared-wall homes — in the form of for-sale condominiums or for-rent apartments — are necessary to create lively downtowns and mixed-use districts. And economists point to the growing number of Baby Boomers who are becoming empty nesters as ideal candidates for the “lock-it-and-leave-it” condominium lifestyle.
The largest uncertainty is the wave of high-rise condominium proposals that started washing over the state about three years ago. Some analysts say the wave has already crested, but others are not convinced.
There is much less doubt about the future of townhouse-style condominiums, which appear to have wide acceptance among builders, lenders, buyers and government officials.
Many cities are designating mixed-density areas, said Jennifer Gastelum, a senior planner for Pacific Municipal Consultants in Rancho Cordova. These areas have a range of housing types and mix of land uses. New development in these areas can create vibrancy and help cities provide their fair share of low- and moderate-income housing units, she said.
There is little interest on the part of developers or cities in large apartment projects, Gastelum added. Thus, small-scale apartment projects and condominiums help meet a number of needs.
In the East Bay city of Walnut Creek, city officials in April adopted a new general plan that designates mixed-use districts in which housing is permitted at 80 to 95 units per acre. With a 50-foot height limit, the city envisions up to three floors of residential units above ground-floor retail, explained Walnut Creek Planning Manager Sandra Meyer.
“We have very little vacant single-family land left,” Meyer said. Thus, nearly all new housing is in the form of multi-family projects. Most of those are proposed with subdivision maps so that even if a project starts as rental apartments, it could be converted easily to for-sale condominiums, she added.
Walnut Creek’s lack of large tracts for housing is a common trait among cities in California’s urban areas. “The development community” said CBIA Chief Economist Alan Nevin, “is fast running out of single-family land, and basically has been forced into condominiums even though it really didn’t want to be.”
While most large building companies are uncomfortable with high-rise condominiums, they can accept townhouse style developments, Nevin said. Bay Area builder Taylor Woodrow, for example, expects that 70% of units it builds this year will be townhouses. Again, this is due mostly to the land that is available. Taylor Woodrow has a large presence in San Jose, a city that is planning for tens of thousands of apartments and condominiums near transit stations and in redevelopment project areas.
In the last year, the newly formed urban division of John Laing Homes has pursued numerous condominium projects in Southern California. Among those are 180 residential units over 14,000-square-feet of retail space in Hollywood, a 95-unit mixed-use project on Ventura Boulevard in Sherman Oaks, 97 townhouse condos for seniors in Rancho Palos Verdes, and a 120-unit, four-story project in Culver City.
“We’ve got all of these millions of people coming to California. They can’t all commute three hours to work,” said Phil Simmons, president of Laing’s urban division. Laing seeks out sites with “proximity to services,” he added. “We look either for a neighborhood that has never deteriorated or a neighborhood that has revitalized and the trend is toward more revitalization.”
Although news accounts continue to predict a housing market slowdown, Paul Zeger, president of Pacific Marketing Associates, which markets condominium projects throughout the Bay Area, said that perspective is necessary. Compared with 2005’s remarkable pace, sales are down this year. Yet Zeger said his firm is selling 12 to 20 units a week in the 15 projects it is handling, rather than the 30 to 40 units a week it was selling last year. That has led to more buyer-seller negotiations and incentives worth $10,000 to $15,000 for buyers, which, Zeger noted, amount to only about 1% to 2% of sales prices. Condominiums in downtown Palo Alto, for example, are selling for $850 per square foot.
Zeger said the market for condominiums is huge because Baby Boomers are becoming empty nesters, and because traffic congestion and high fuel prices make easy access to transit and services more appealing. “Cities have finally figured out that density is a good thing. It gets you an active urban core,” Zeger said.
A number of cities in Orange County have embraced the concept of an active urban core, perhaps none more than Anaheim. That city’s ambitious Platinum Triangle project has designated room for more than 7,000 housing units — not a single one of which will be a single-family residence. The whole point of the 800-acre project is to place people in close proximity to transit, sports facilities, restaurants and shopping, said Anaheim Planning Director Sheri Vander Dussen.
“If we were to do a typical single-family subdivision, the majority of residents would be way too far away to walk to the train station,” Vander Dussen said.
When Platinum Triangle planning started, the city envisioned apartments filling the district. However, rentals do not pencil out anymore, and most new units are for-sale condominiums, Vander Dussen said.
Anaheim has approved four condominium towers of more than 30 stories, and several more of 20-plus stories. Those projects are apparently going forward, as are high-rise projects in nearby Irvine. Elsewhere, however, the high-rise condo market appears to be sinking.
The CBIA’s Nevin, who is based in San Diego, estimated that two-thirds of the proposed high-rise projects in that city will not break ground. This is partly because a bunch of projects that broke ground in 2004 are about to come on line, and partly because both builders and lenders have gotten nervous, he said.
“Now that things are cooling off, builders are pulling out,” said Nevin, noting that Lennar is closing a downtown San Diego office after only one year. “There are very few companies on the West Coast that understand vertical construction.”
San Francisco has about 15 mid- to high-rise residential projects, and those appear to be doing well, Nevin said. Los Angeles, though, is a different story. The Los Angeles Community Redevelopment Agency lists about 60 planned residential projects in downtown. “If more than a few of them get built, it’s going to be a bloodbath because there’s not a market there,” Nevin predicted.
In downtown Sacramento, a number of high-rise condo towers have been proposed and several were approved. Thus far, none have broken ground, although BNC Development announced in April that it had pre-sold 75% of the 265 units in a planned 38-story tower on Sixth Street. Construction on that project could begin this summer.
Alan Nevin, California Building Industry Association, (619) 233-3781.
Paul Zeger, Pacific Marketing Associates, (415) 346-7888.
Sandra Meyer, City of Walnut Creek, (925) 943-5836.
Jennifer Gastelum, Pacific Municipal Consultants, (916) 361-8384.
Sheri Vander Dussen, City of Anaheim, (714) 765-4300.